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Gut feel or rational analysis? Both may be vital in finding winning ideas for new markets

4 May 2021

So many ideas, so many decisions to be made. Daria Nepriakhina/Unsplash

Expansion into new markets is often essential for companies to grow, and there can be a constant quest for ideas with market-creating potential. But what if the very processes designed to help find those breakthrough ideas actually run the risk of killing them? How do you steer a path between nurturing novel ideas and yet also subjecting them to the rigorous scrutiny needed to ensure they are truly viable?

The value of accessing new markets is demonstrated by companies such as Amazon, which first expanded its online book sales to incorporate a far wider range of products, then branched into creating technical devices such as Fire and Kindle. Often, however, companies go down the safer route of producing new products for existing markets, even though they might make far larger profits by developing the competences to enter new product markets. What can help firms identify and seize opportunities for growth? And how can they improve their ability to select new market-creating ideas?

Reason, intuition or both?

To answer these questions, our research focused on two factors, both of which have been shown to influence how individuals take decisions and how well they perform. The first is cognitive style, or the way that individuals typically process information. The second is the degree to which companies formalise their new-product evaluation and selection processes.

Research shows that managers’ cognitive style can be either rational or intuitive when evaluating ideas (Eling et al. 2015, Sukhov et al. 2021). With a rational style, the approach to information-processing and decision-making is analytical, rules-based, and systematic. Managers with this kind of predisposition make a detailed, accurate, and comprehensive assessment of new product ideas, which is beneficial for ensuring that the judgements made are rigorous and logical.

By contrast, those with an intuitive style operate more on gut feeling, and process information in a more experiential and holistic way. They are likely to be excited by ideas that offer great potential to create new markets, and are not intimidated by their vagueness or the risks involved. They are more receptive to ambiguous information – potentially highly valuable, since new product ideas are often elusive concepts.

Just as individuals differ, so do the approaches favoured by companies. Some will instigate procedures that encourage more analytical decisions – for example, using formal idea evaluation tools such as grid analysis techniques and weighted point-rating evaluation matrices. Others may opt for more informal ways of evaluating ideas, which leave more room for evaluators to draw on their intuition.

In our research, we wanted to discover how differences in individual cognitive style and formalisation within a company would impact the way managers evaluated ideas. Would they affect their ability to recognise and select new market-creating ideas?

Deciding which ideas make the cut

We surveyed 138 idea evaluators from European high-tech companies in the electronics and machine-manufacturing industries. More than a third worked in R&D, a third had business unit or product management responsibilities, and roughly 16% were top managers. On average the respondents had nine years’ experience of evaluating ideas for their companies.

Managers were asked to consider their own preferred style. They were asked, for example, to what degree they considered the fine detail of each idea and how far they relied on instinct when deciding what to do. They also provided insights into the extent to which their company used formalised idea evaluation processes and their own idea evaluation behaviour. Would they, for example, consider an idea to be worth pursuing because it “fits current customers’ stated needs”, “helps to increase sales in our existing markets”, or “caters to a market that doesn’t yet exist and thus has the power to profoundly change the marketplace”?

What our findings showed is that:

  • Rational idea evaluators tend to seek out ideas that focus on a company’s current strengths.

  • Intuitive evaluators focus more on identifying opportunities to enter new markets.

  • For intuitive evaluators, a highly formalised evaluation process reduces their emphasis on finding opportunities in new markets.

This last finding in particular indicates a key danger in formalised new product development: If the selection procedures are too rigid, this inhibits intuitive evaluators, making them less able to spot new opportunities and seemingly killing their entrepreneurial spirit. Potentially valuable ideas may thus be lost.

Our results therefore suggest that it’s important to pay close attention to your idea evaluation processes if your goal is to find more new market opportunities for your company. In particular:

  • Be clear about the objective of your idea evaluation sessions: Involve intuitive evaluators when you’re looking for new market-creating ideas, but if you’re seeking ideas that are incremental advances on existing products, use more rational evaluators.

  • Consider using a two-stage evaluation process. In the first stage, intuitive individuals could be given freedom to draw up a shortlist of new market-creating ideas without using formal evaluation criteria. In the second stage, a panel of both rational and intuitive evaluators could examine those ideas together, assessing them against more formal criteria. This could be useful as the formal criteria will stimulate reflectiveness among evaluators and ensure that a company builds on its strengths.

Les auteurs ne travaillent pas, ne conseillent pas, ne possèdent pas de parts, ne reçoivent pas de fonds d'une organisation qui pourrait tirer profit de cet article, et n'ont déclaré aucune autre affiliation que leur organisme de recherche.


Read the full article here.
This content was originally published by The Conversation. Original publishers retain all rights. It appears here for a limited time before automated archiving. By The Conversation

Covid-19 – Johns Hopkins University

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